Second quarter GDP in Japan edged up 0.1% quarter on quarter, 0.4% year on year, the bottom end of the forecast range. Lindsay Coburn, a consultant at ING Bank, said:

Our initial estimates for the third quarter point to outright contraction in the economy, but these are early days. Given real growth in the second quarter was barely positive, it would not take very much for it to be subsequently revised down to a negative growth out-turn. The odds that Japan will post two successive quarters of negative growth have clearly increased – we think to around one-third. Japan could be in recession right now.

The FTSE 100 is down 14.34 points at 5261.10, with insurers among the main fallers after Avivaconfirmed its rejection of RSA Insurance's £5bn approach to buy its general insurance business in the UK and Ireland. Aviva is down 4.3p at 383.1p while RSA is 1.9p lower at 125.5p.

Vedanta Resources, however, is up 82p to £21.35 after unveiling its proposal to buy into Cairn Energy's Indian business. Vedanta is after between 51% and 60% of the Indian business, with between 40% and 51% coming from Cairn itself and the rest from other Cairn India shareholders. The deal will be worth between $8.5bn and $9.6bn. Cairn intends to use the cash to fund its development and exploration programme, and will return the rest to shareholders. It will keep a stake in Cairn India, but Phil Corbett at Cairn's broker RBS Hoare Govett said:

The rump of the Cairn India stake, if retained, could provide for a potentially unwieldy structure, and Cairn Energy's management would no longer have a significant say in the Cairn India strategy going forward. As a result, we would ultimately have preferred if the stake was sold its in entirety and would ultimately like to see the rump disposed of sooner rather than later. However, we see the main focus this morning being on the material cash sum that is likely to be realised through this transaction. This should result in a significant distribution to shareholders, and in all likelihood comfortably fund the ongoing Greenland exploration programme over the next couple of years. Combined with the uplift in our pro-forma asset value from 498p into the 558p-569p range, we see the shares reacting positively to the announcement this morning.

The news has also lifted Indian power oil and gas company Essar Energy by 5.3p to 392.4p.